Electro Scientific Industries, Inc.
Aug 2, 2017

ESI Announces First Quarter Fiscal 2018 Results

PORTLAND, Ore., Aug. 02, 2017 (GLOBE NEWSWIRE) -- Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2018 first quarter ended July 1, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation,  restructuring, impairments of other assets and inventory, and other items included in the non-GAAP reconciliation table below.

First quarter revenue was $72.7 million, compared to $47.7 million in the first quarter of last fiscal year. GAAP net income was $2.9 million or $0.08 per diluted share, compared to a net loss of $0.1 million, or $0.00 per share one year ago. On a non-GAAP basis net income was $13.0 million or $0.38 per diluted share, compared to net income of $3.0 million or $0.09 per diluted share in the prior year's first quarter.

Michael Burger, CEO of ESI, stated, "We started this fiscal year with another strong quarter, delivering year over year growth in orders, revenues, backlog, and earnings. Sales grew by more than 50% compared to the same quarter last year. Further, I am pleased with the progress we have made on our restructuring program, which is nearly complete. With healthy market conditions and a solid product portfolio, we expect strong second quarter revenue and profit growth year over year."

Burger continued, "Orders in the first quarter more than doubled from a year ago to $76.6 million, driven by flex drilling and good demand in Service and Component Test. We also received another multi-unit order for our nViantTM drilling tool for high-density interconnect circuit boards. Lastly, we received follow-on orders for our UltrusTM wafer scribing tool after a lengthy evaluation and selection process."

On a GAAP basis gross margin was 36.3%, compared to 43.7% in the first quarter of last year, impacted by a $7.2 million of restructuring charges primarily related to impairment of other assets and inventory taken in the most recent quarter. Operating expenses were $23.0 million, up from $20.5 million last year, with the increase driven by variable expenses, the addition of Visicon and $1.2 million of restructuring costs. Operating income was $3.5 million, compared to $0.3 million last year's first quarter.

Non-GAAP gross margin was 46.7%, flat compared to the first quarter of last year. Non-GAAP operating expenses were $20.3 million, above a year ago due to variable expenses and the addition of Visicon. Non-GAAP operating income was $13.6 million, or 18.7% of sales, compared to $3.3 million, or 7.0% of sales, last year.

Balance Sheet and Cash Flow

At quarter end, total cash, restricted cash and current investments were $69.7 million. The company generated $7.4 million of cash from operations during the quarter. Inventories increased by $3.3 million, trade receivables increased by $8.2 million, and accounts payable increased by $4.6 million.

Second Quarter 2018 Outlook

Based on current market and backlog conditions, revenues for the second quarter of fiscal 2018 are expected to be between $63 and $70 million. Non-GAAP earnings per diluted share is expected to be $0.25 to $0.30.

Burger concluded, "We are encouraged by the near-term strength of the business and the progress we are making in our restructuring efforts. The broad market environment is healthier than it was a year ago. That said, our business remains subject to seasonal fluctuations, and as such we expect quarterly business levels to take a step down from the first half, but with our lower fixed expense base providing earnings leverage compared to last year. With a strong team, innovative technology, and an improved revenue breakeven point, I believe we can weather the seasonal patterns and deliver revenue growth and more consistent earnings over time."

The company will hold a conference call today at 5:00 p.m. ET. The session will include a review of the financial results, operational performance and business outlook, and also a question and answer period. The conference call can be accessed by calling 888-339-2688 (domestic participants) or 617-847-3007 (international participants). The conference ID number is 69583939. A live audio webcast can be accessed at www.esi.com. The webcast will be available on ESI's website for one year.

Discussion of Non-GAAP Financial Measures

In this press release, we have presented financial measures which have not been determined in accordance with generally accepted accounting principles (GAAP) and are therefore non-GAAP financial measures. Non-GAAP, or adjusted, financial measures exclude the impact of purchase accounting, equity compensation, restructuring, inventory and goodwill write-downs, and other items. We believe that this presentation of non-GAAP financial measures allows investors to assess the company's operating performance by comparing it to prior periods on a more consistent basis. We have included a reconciliation of various non-GAAP financial measures to those measures reported in accordance with GAAP. Because our calculation of non-GAAP financial measures may differ from similar measures used by other companies, investors should be careful when comparing our non-GAAP financial measures to those of other companies.

About ESI

ESI's integrated solutions allow industrial designers and process engineers to control the power of laser light to transform materials in ways that differentiate their consumer electronics, wearable devices, semiconductor circuits and high-precision components for market advantage. ESI's laser-based manufacturing solutions feature the industry's highest precision and speed, and target the lowest total cost of ownership. ESI is headquartered in Portland, Oregon, with global operations and subsidiaries in Asia, Europe and North America. More information is available at www.esi.com.

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, growth, products, revenue, and earnings, including statements regarding the timing and completion of our restructuring program, expectations regarding market conditions, products, year-over-year revenue, and second quarter profit growth. These forward-looking statements are based on information available to us on the date of this release and we undertake no obligation to update these forward-looking statements for any reason. Actual results may differ materially from those in the forward-looking statements. Risks and uncertainties that may affect the forward-looking statements include those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as: the risk that anticipated growth opportunities may be smaller than anticipated or may not be realized; risks related to the relative strength and volatility of the electronics industry; the health of the financial markets and availability of credit for end customers and related effect on the global economy; the volatility associated with the industries we serve which includes the relative level of capacity and demand, and financial strength of the manufacturers; the risk that customer orders may be canceled or delayed; our ability to respond promptly to customer requirements; the risk that we may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; our ability to develop, manufacture and successfully deliver new products and enhancements; the risk that customer acceptance of new or customized products may be delayed; the risk that large orders and related revenues may not be repeated; our need to continue investing in research and development; our ability to hire and retain key employees; our ability to create and sustain intellectual property protection around our products; the risk that competing or alternative technologies could reduce demand for our products; the risk that we may not be successful in penetrating new or adjacent markets; the risk that the incorporation of Visicon's vision technology does not give us a competitive advantage; the risk that our new products may not gain acceptance in the marketplace; the risk that new products may not be introduced to the market in the anticipated time frame or at all; risks associated with our restructuring efforts; foreign currency fluctuations; the risk that duties or tariffs could be imposed or increased on goods imported or exported by us; the risk of timing of shipments or increased costs related to licenses for goods exported by us; the risk that changes to policies regarding immigration and visits to the United States could negatively impact our ability to hire or retain and train qualified personnel or our ability to operate internationally on an integrated basis; the company's ability to utilize recorded deferred tax assets; taxes, interest or penalties resulting from tax audits; and changes in tax laws or the interpretation of such tax laws.

 
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
First Quarter Fiscal 2018 Results
Condensed Consolidated Statements of Operations
(Unaudited)
 
  Fiscal quarter ended
(In thousands, except per share data) Jul 1, 2017 Apr 1, 2017 Jul 2, 2016
Net sales:      
Systems $62,093  $40,029  $38,200 
Services 10,591  9,889  9,468 
Total net sales 72,684  49,918  47,668 
Cost of sales:       
Systems 41,426  27,499  22,422 
Services 4,838  4,189  4,438 
Total cost of sales 46,264  31,688  26,860 
Gross profit 26,420  18,230  20,808 
Gross margin 36.3% 36.5% 43.7%
Operating expenses:      
Selling, general and administrative 12,808  13,781  12,871 
Research, development and engineering  8,934  8,461  7,630 
Restructuring costs 1,211  6,614   
Impairment of goodwill   7,445   
Net operating expenses 22,953  36,301  20,501 
Operating income (loss) 3,467   (18,071) 307 
Non-operating (expense) income:      
Interest and other (expense) income, net (184) 103  (78)
Total non-operating (expense) income (184) 103  (78)
Income (loss) before income taxes 3,283   (17,968) 229 
Provision for (benefit from) income taxes 381  (45) 347 
Net income (loss) $2,902  $(17,923) $(118)
Net income (loss) per share - basic $0.09  $(0.54) $ 
Net income (loss) per share - diluted $0.08  $(0.54) $ 
             
             


Electro Scientific Industries, Inc.
First Quarter Fiscal 2018 Results
Condensed Consolidated Balance Sheets
(Unaudited)
 
(In thousands) Jul 1, 2017 Apr 1, 2017
Assets    
Current assets:    
Cash and cash equivalents $58,909  $56,642 
Short-term investments 9,720  5,743 
Trade receivables, net 48,081   40,494 
Inventories 62,257  58,942 
Shipped systems pending acceptance 6,657  5,713 
Other current assets 5,358  6,180 
Total current assets 190,982  173,714 
Non-current assets:    
Property, plant and equipment, net 20,480  21,619 
Non-current deferred income taxes, net 889  890 
Goodwill 2,626   3,027 
Acquired intangible assets, net 6,266  6,564 
Non-current restricted cash 1,094  1,090 
Other assets 13,260  17,841 
Total assets $235,597  $224,745 
Liabilities and shareholders' equity    
Current liabilities:    
Accounts payable $25,793  $21,213 
Accrued liabilities 23,818  22,186 
Deferred revenue 14,834  14,712 
Total current liabilities 64,445  58,111 
Non-current liabilities    
Long-term debt 13,379  13,489 
Income taxes payable 1,214  1,036 
Deferred income tax liability, net 8  8 
Other liabilities 8,106  7,570 
Total liabilities 87,152  80,214 
Shareholders' equity:    
Preferred and common stock 207,954  207,152 
Accumulated deficit (58,506) (61,407)
Accumulated other comprehensive loss (1,003) (1,214)
Total shareholders' equity 148,445  144,531 
Total liabilities and shareholders' equity $235,597  $224,745 
End of period shares outstanding 33,689  33,260 
       
       


Electro Scientific Industries, Inc.
Analysis of First Quarter Fiscal 2018 Results 
(Unaudited)
 
  Fiscal quarter ended
(Dollars and shares in thousands) Jul 1, 2017 Apr 1, 2017 Jul 2, 2016
Sales detail:      
Printed Circuit Board $52,318  $28,339  $30,918 
Component Test 8,181  7,382   4,602 
Semiconductor 6,737  8,036  7,609 
Industrial Machining 5,448  6,161  4,539 
Net Sales $72,684  $49,918  $47,668 
       
As % of Net Sales      
GAAP      
Gross profit 36.3%  36.5% 43.7%
Selling, general and administrative expense 18% 28% 27%
Research, development and engineering expense 12% 17% 16%
Net operating expenses 32% 73% 43%
Operating income (loss) 5% (36%) 1%
Non-GAAP      
Gross profit 46.7% 45.7% 46.7%
Net operating expenses 28% 40% 40%
Operating income (loss) 19% 5% 7%
       
GAAP - Effective tax rate % 11.6% 0.3% 151.5%
Weighted average shares outstanding       
Basic 33,432  33,065  31,815 
Diluted GAAP 34,321  33,065  31,815 
Diluted Non-GAAP 34,321  33,822  32,530 
End of period employees 607  683   657 
          
          


Electro Scientific Industries, Inc.
First Quarter Fiscal 2018 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)
 
  Fiscal quarter ended
(In thousands, except per share data) Jul 1, 2017 Apr 1, 2017  Jul 2, 2016
Gross profit per GAAP $26,420  $18,230  $20,808 
Purchase accounting 251  447  229 
Equity compensation 67  105  120 
Charges for other asset and inventory impairment 7,194  1,696   1,116 
Charges for impairment of intangibles   2,349   
Non-GAAP gross profit $33,932  $22,827  $22,273 
       
Operating expenses per GAAP $22,953  $36,301  $20,501 
Purchase accounting (219) (414) (250)
Equity compensation (1,211) (1,707) (1,170)
Impairment of inventory     (100)
Restructuring costs (1,211) (6,614) (37)
Impairment of goodwill   (7,445)  
Non-GAAP operating expenses $20,312  $20,121  $18,944 
       
Operating income (loss) per GAAP $3,467  $(18,071) $307 
Non-GAAP adjustments to gross profit 7,512  4,597  1,465 
Non-GAAP adjustments to operating expenses 2,641  16,180  1,557 
Non-GAAP operating income $13,620  $2,706  $3,329 
       
Non-operating (expense) income, net per GAAP  $(184) $103  $(78)
Non-GAAP non-operating (expense) income $(184) $103   $(78)
Non-GAAP income (loss) before income taxes $13,436  $2,809  $3,251 
       
Net income (loss) per GAAP $2,902  $(17,923) $(118)
Non-GAAP adjustments to gross profit 7,512  4,597  1,465 
Non-GAAP adjustments to operating expenses 2,641  16,180  1,557 
Income tax effect of other non-GAAP adjustments (24) 32  65 
Non-GAAP net income $13,031  $2,886  $2,969 
Basic Non-GAAP net income per share $0.39  $0.09  $0.09 
Diluted Non-GAAP net income per share $0.38  $0.09  $0.09 
             
              


Electro Scientific Industries, Inc.
First Quarter Fiscal 2018 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
  Fiscal quarter ended
(In thousands) Jul 1, 2017 Apr 1, 2017 Jul 2, 2016
Net income (loss)  $2,902  $(17,923) $(118)
Non-cash adjustments and changes in operating activities 4,529  16,789  11,566 
Net cash provided by (used in) operating activities 7,431  (1,134) 11,448 
Net cash (used in) provided by investing activities (4,789) (203) 8,979 
Net cash (used in) provided by financing activities (506) 13,923  (398)
Effect of exchange rate changes on cash 135  255  21 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 2,271  12,841  20,050 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 57,732  44,891  42,413 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $60,003  $57,732  $62,463 
              


Reconciliation of GAAP to Non-GAAP Financial Measures - Projected Fiscal quarter ending September 30, 2017
   
Non-GAAP earnings per diluted share 0.25 - 0.30
Purchase accounting (0.01)
Equity compensation (0.04)
Other items (0.06) - (0.09)
GAAP earnings per diluted share 0.11 - 0.19

 

Brian Smith 

ESI

503-672-5760

smithb@esi.com

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Source: Electro Scientific Industries, Inc.

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